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Regulation and Compliance > Federal Regulation > SEC

SEC Advancing Third-Party Exam, Fiduciary Rule Plans

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Commissioners at the SEC are currently reviewing staff recommendations on a rule to require “independent compliance reviews” for advisors, or third-party exams, as well as a “detailed outline” on a uniform fiduciary duty rule for brokers and advisors, agency Chairwoman Mary Jo White said Tuesday.

During a question-and-answer session at the Securities Industry and Financial Markets Association’s annual capital markets conference in Washington, White also said coordination between the SEC and the Department of Labor continues regarding implementation of Labor’s fiduciary rule.

During her Q&A with SIFMA president and CEO Ken Bentsen, White said that SEC staff has completed the “independent compliance reviews” plan for advisors and that the proposal is “now with the commissioners.”

Indeed, White told reporters on the sidelines of the meeting that SEC Commissioners Kara Stein and Michael Piwowar are “studying” a recommendation from SEC staff on what the industry dubs a third-party exam rule for advisors, but said she “couldn’t predict the timing” on when such a rule would come up for a vote.

Norm Champ, the former director of the SEC’s investment management division, told ThinkAdvisor in a recent interview that he believes White “could propose” the third-party exam rule for advisors before the election. Champ, who’s now a partner in Kirkland & Ellis’ private funds group, has criticized the idea of third-party advisor audits.

White also addressed the continuing coordination between the SEC and the DOL regarding Labor’s fiduciary rule.

“The coordination is going on and will continue to go on” with respect to the rule, White said. “Before, we’ve had some overlapping rules where we’ve had to coordinate, maybe not in the same dimension…we’re listening to those issues of implementation. The challenges are there, and we are very receptive to hear about those challenges.”

As to the SEC finalizing its own fiduciary rule, White reiterated her position that she supports the agency moving ahead with such a rule, but stated: “I’m one vote; it’s very complex.”

A fiduciary rulemaking by the SEC “needs to be a data driven exercise so we get it just right,” White continued, so that “we’re achieving the objective of a fiduciary standard,” which is to raise the bar for financial professionals without depriving retail investors of reasonably priced and accessible advice.

As it stands now regarding an SEC fiduciary rule, “staff has provided the commission a detailed outline about such a rule; that’s before the commissioners for their consideration. But as you know, there are different views from different commissioners about the subject,” White said. “I’m being clear that it’s not anytime soon, but we continue to focus on it.”

Because an SEC fiduciary rule would comply with Section 913 of the Dodd-Frank Act, which does not apply to Labor and the Employee Retirement Income Security Act, White said she would not expect that an SEC fiduciary rule would be “identical” to DOL’s. “There are differences in what I would expect to see.”

The SEC is also “constantly” attempting to increase coverage of registered investment advisors, White said. “I’ve taken a number of actions to increase the exam coverage,” she said, noting that 2,000 new RIAs came under the SEC’s purview in the last year.

But despite transferring some SEC examiners who focus on broker-dealers to advisors, as well as doing some “targeted hiring” of exam staff from Congressional appropriations increases, the agency’s Office of Compliance Inspections and Examinations is “still under resourced.”

White also said she sees fintech having “the potential to transform the securities industry—from trading, clearance and settlement to how advice is provided,” and she added “the SEC, and staff, is very, very focused on this.” The agency plans to hold a Fintech Forum on Nov. 14 with regulators and industry representatives to talk about everything from automated advice to compliance, the SEC Chairwoman said. 

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